A major cold shift in the weather outlook, including forecasts showing polar air spilling into the Lower 48 to close out the month, set the stage for broad-based gains in natural gas spot prices for the week ended Friday (Jan. 18); the NGI Weekly Spot Gas National Avg. jumped 96.5 cents to $3.935/MMBtu.

The Northeast recorded some of the largest gains as forecasts showed cities along the Interstate 95 corridor dropping into the single digits during the week ahead. Transco Zone 6 NY averaged $6.835, up $2.865.

Prices also strengthened in the Midwest, where some of the coldest temperatures were expected during the upcoming pattern. Michigan Consolidated jumped 66.0 cents to $3.350.

In the West, prices throughout the Rockies and California averaged significantly higher for the week as wintry precipitation moved through the region. Northwest Sumas averaged $4.080 on the week, up $1.075, while SoCal Border Avg. gained 83.0 cents to $3.965.

Turning to the futures, another up-and-down session in the natural gas futures market ended favorably for the bulls Friday, with some colder trends in the latest weather models helping to spark a rebound from overnight and early morning selling.

The February Nymex futures contract settled at $3.482, up 6.9 cents. After selling off to as low as $3.201 shortly after 9 a.m. ET, the front month gained steadily throughout the session, a rally that picked up steam into the settle. Week/week (w/w) the front month gained 38.3 cents after settling at $3.099 the Friday before.

The market was eventually able to hold a key support level around $3.25-3.30 Friday, helped by colder European model guidance that lifted prices Friday afternoon, according to Bespoke Weather Services.

“Now we head into the weekend with a decent amount of cold risk priced back into the market, especially following a run of the European operational model that would be nearly impossible to replicate,” Bespoke said. “Cold to the intensity shown on the model is unlikely to verify, but we could approach those levels, which would easily be enough to rally gas prices further” during the upcoming week.

The forecaster said a drop in gas-weighted degree days over the weekend would be surprising and that it expected “models to still show significant long-range cold risks on Monday, as many of the colder risks currently seen are finally able to roll forward.”

The declines earlier Friday suggested a market skeptical of the upcoming cold shift, according to EBW Analytics Group CEO Andy Weissman.

“The natural gas market is taking a ‘prove it to me’ attitude,” Weissman said. “During the past three days, forecasts have moderated slightly,” but they still called for “bitterly cold” temperatures to hit over the weekend, with much colder-than-normal weather also on tap for Weeks 2 and 3.

“After the forecast bust that occurred in late December, however -- in which the very cold weather predicted by both the European and American models never arrived -- the market is waiting for cold to verify before reacting,” he said. “The likelihood remains high that Week 2 and Week 3 will see by far the coldest weather so far this winter, with the potential for extreme cold to generally continue for most of February, with 200 Bcf-plus withdrawals...If this occurs, prices could still rebound sharply.”

Meanwhile,The Energy Information Administration (EIA) on Thursday reported an on-target 81 Bcf withdrawal from U.S. natural gas stocks that prompted some futures selling but generally left the market to focus on the impact of Arctic cold set to spill into the Lower 48 starting this weekend.

Another in a run of deficit-shrinking storage reports thanks to relatively mild conditions for much of the country in recent weeks, the 81 Bcf pull for the week ended Jan. 11 looks meager compared to both the 208 Bcf withdrawal EIA recorded for the year-ago period and the five-year average 218 Bcf withdrawal.

But market participants had been looking for a light withdrawal in line with the actual figure. Major surveys this week had pointed to a pull of around 76-82 Bcf. Intercontinental Exchange EIA Financial Weekly Index futures settled Wednesday at a withdrawal of 84 Bcf.

Prior to the 10:30 a.m. ET release of EIA’s report, the February Nymex futures contract was up about 15 cents from the prior day’s settle, helped by overnight guidance that advertised the potential for intense cold expected for the final third of January to stretch into early next month.

As the 81 Bcf figure crossed trading screens, the February contract traded as high as $3.554 and as low as $3.501 before settling back into a range of around $3.530-3.540, within pennies of the pre-report trade. By 11 a.m. ET, February had slipped to around $3.447, up about 6.3 cents from Wednesday’s settle.

Bespoke Weather Services said the on-target withdrawal, which came within 2 Bcf of its 83 Bcf estimate, helps explain larger misses from EIA’s report over the prior two weeks as holiday noise.

“The market continues to remain around 2 Bcf/d loose to the five-year average,” with a dip in production offset by recent warmth, Bespoke said. But “we are clearly trending tighter now that cold air is arriving. However, this balance confirms that weather will be the dominant price catalyst moving forward. Balances may be able to tighten enough to put 1 Tcf end-of-season in play if we max cold through the winter, but our estimate of 1.16 Tcf is more likely as cold should ease into March.”

Total Lower 48 working gas in underground storage stood at 2,533 Bcf as of Jan. 11, 77 Bcf (3.0%) below last year’s stocks and 327 Bcf (11.4%) below the five-year average, according to EIA.

By region, EIA reported a 34 Bcf withdrawal in the Midwest, with the next largest pull occurring in the East at 31 Bcf. The Pacific withdrew 8 Bcf for the week, while the Mountain region pulled 5 Bcf. In the South Central, a 6 Bcf withdrawal from nonsalt offset a 1 Bcf injection into salt stocks, according to EIA.

“Compared to degree days and normal seasonality, the 81 Bcf withdrawal is loose by about 2.7 Bcf/d versus the five-year average,” Genscape Inc. analysts Margaret Jones and Eric Fell said Friday. The upcoming report for the week ended Jan. 18 is set to deliver the first triple-digit withdrawal of 2019, based on an additional 40 heating degree days w/w, the analysts said.

As for the Jan. 11 report week, “total power generation was up around 5 average GWh as the holiday season ended, although degree days dropped off” from the week containing New Year’s Day, Jones and Fell said. “Nuclear and renewable generation was up almost 7 average GWh as wind was up 6 average GWh and hydro was up around 2 average GWh, with relatively small w/w declines in nuclear and solar gen.

“Coal was down around 3 average GWh, and gas was up 2 average GWh w/w for an estimated 0.3 Bcf/d more gas burn w/w.”

Adjusting for weather, analysts with Raymond James & Associates Inc. said the 81 Bcf EIA pull implies the market was about 2.9 Bcf/d looser compared to the the same week last year. On average the market has been 5.2 Bcf/d looser year/year over the past four weeks, according to the firm.

On the supply side, slumping oil prices in recent months appear to have taken a toll on domestic drilling activity, based on the latest rig count from Baker Hughes, a GE Company. The United States dropped a whopping 25 rigs from its running total to fall to 1,050 rigs as of Friday (Jan. 18), driven by 21 oil-directed rigs exiting the patch, according to the oilfield services company.

Recent oil price volatility has made exploration and production (E&P) companies skittish, and the uncertainty around their spending plans may delay the broad-based recovery expected only three months ago, Schlumberger Ltd. CEO Paal Kibsgaard said Friday.

During a conference call with investors to discuss fourth quarter and full-year results, as well as provide some perspective on what the No. 1 oilfield services company is hearing from E&P customers, Kibsgaard noted that some E&Ps already have reduced their capital expenditure plans for 2019.

Recent discussions offer “clear signs that E&P investments are starting to normalize and reflect a more sustainable financial stewardship of the global resource base. For the North America land E&P operators, this means that future investments will likely be much closer to the level that can be covered by free cash flow.”

The drilling declines revealed Friday reflect the impact of lower commodity prices, along with takeaway constraints, evidenced by seven rigs exiting the Permian Basin, NGI’s Patrick Rau, director of Strategy & Research, said.

A lot of the declines “seem to be taking place in lesser/conventional places” where it’s likely that “drilling economics aren’t quite as good,” Rau said. “Our main unconventional rig chart shows rigs at 870, down just three (0.3%), and the other notable section of that chart is 66, down eight (11%). The remaining regions comprise the other 114 rigs, and were also down 11%.

“That tells me that conventional drilling is leading the decline in rigs, and that unconventional drilling continues to chug along, once again in part because the economics there are better, but also because the best unconventional wells require super spec land rigs, and no one wants to release those. Super spec rigs remain in high demand.”

Prices Spikes For East Coast

In the spot market Friday, gas priced for delivery over the weekend and Martin Luther King Jr. Day shot higher along the East Coast while falling pretty much every else.

The first in a series of blasts of frigid polar air was expected to spread across the central, southern and eastern United States over the weekend and early in the week ahead, bringing heavy rain and snow, NatGasWeather said Friday. Low temperatures were expected to range from the negative teens to 20s, with the coldest conditions in the Midwest and Northeast, according to the forecaster.

Radiant Solutions was calling for major cities along the Interstate 95 corridor to see temperatures drop into the single digits and teens on Monday, roughly 15-20 degrees colder than normal. New York City was expected to see a low of 8 degrees Monday, 21 degrees below normal.

Further south, Washington, DC, was expected to see a low of 14 degrees Monday, while lows in Atlanta were expected to drop into the 20s, according to Radiant.

Hefty gains were the norm across the Northeast, where a number of points averaged above $10. Transco Zone 6 NY spiked sharply ahead of what figured to be an intensely frigid holiday weekend, adding $15.200 to average $18.785. In the Southeast, Transco Zone 5 surged $4.140 to $7.800, while further upstream in Appalachia, Texas Eastern M-3, Delivery spiked $4.945 to $8.470.

Prices throughout the Midwest, Gulf Coast, Texas and Midcontinent moved the opposite direction Friday, with traders apparently satisfied with robust gains earlier in the week as fair pricing for the demand upside from looming polar chills.

In Chicago, where Radiant Solutions was calling for lows to drop into the single digits Monday, Chicago Citygate slid 13.5 cents to $3.260.

Locations throughout the Rockies and California also sold off heading into the weekend. Kern River tumbled 60.5 cents to $3.490, while SoCal Citygate slid $1.210 to $4.055.

After issuing a voluntary curtailment from high demand earlier in the week, Southern California Gas was calling for demand on its system to drop from just under 3.0 Bcf Thursday to around 2.5-2.7 Bcf/d over the weekend.

Meanwhile, the Mojave Pipeline declared a force majeure Friday, citing an equipment failure that left a unit unavailable at its Topock Compressor Station near the Arizona/California border. According to the pipeline, operational capacity through the Segment 3000 constraint would be reduced from 463,000 Dth/d to 346,000 Dth/d starting Saturday and continuing until further notice.